Dozens of former VBS Mutual Bank employees are heading to the Constitutional Court to claim R230 million from global professional services firm KPMG for misstating the financial statements of the now-defunct financial institution.
The 60 employees are demanding about R170m for loss of earning capacity and the phobia they have developed towards the banking sector, R1m each for emotional shock, and R450 000 for psychological treatment, which will include five consultations each at a cost of R1 500 a session.
They are blaming former KPMG chartered accountant, director and VBS audit engagement partner Sipho Malaba, a fraud, corruption and money laundering accused, for misstating the bank’s financial position in 2017, which led to its collapse a year later, and for preparing an audit that did not comply with the Generally Accepted Accounting Principles.
The employees told the North Gauteng High Court that if KPMG and/or its directors had not misstated the 2017 financial statements, they would have accurately represented VBS’s financial position and the bank would have received a qualified audit.
Malaba, who also gave regulatory audit opinion he knew to be false, was KPMG’s lead auditor for VBS and had received more than R30.3m by March 2018 from the bank and bought a property in Fourways, Johannesburg, through funds from the financial institution, as well as luxury cars.
The National Prosecuting Authority accuses Malaba of fraudulently covering up the theft of monies that took place between April 2016 and March 2017, and of facilitating the further theft of monies during the same period when he was the auditor of VBS.
On May 6, the ex-VBS employees were given a month to amend their particulars of claim by the high court and were warned by Acting Judge J Yende that if they failed to meet this deadline, their claims would be struck out with costs.
Shoni Ravele, the lawyer of the ex-VBS employees, told Independent Media on Friday that his clients had instructed him to file a direct appeal to the apex court.
“We believe that Malaba should be held accountable,” he said.
According to Ravele, Malaba should have informed the National Treasury and the South African Reserve Bank about the true state of VBS’s finances as he knew them.
The ex-VBS employees will also launch a conditional appeal to the high court, Ravele added.
At the high court, KPMG argued that the ex-VBS employees’ claim did not contain sufficient averments to sustain a cause of action and/or were vague and embarrassing.
In its defence against the claim, KPMG said that even if the firm culpably caused the former VBS staff’s loss, such conduct was not wrongful, because auditors do not owe a legal duty to the employees of the companies they audit.
KPMG maintained that it was not the factual or legal cause of the ex-VBS employees’ loss, which was too remote from its conduct for liability to accrue.
The company insisted that the factual cause of the harm the ex-employees allegedly suffered was VBS, alternatively VBS’s curator, and not its auditors.
KPMG also told the high court that the damages for loss of earning capacity were not competent, as there was no basis in law for a claim of loss of future earning capacity arising from retrenchment.
Acting Judge Yende found that auditors are accountable only to the companies they audit and not to shareholders or even employees of such a company.
”The financial statements are not prepared for the individual benefit of the employees; they are prepared for the benefit of the company, thus no legal duty is owed by the auditors to the employees and no claim is competent on the part of the employees for any misstatement,” the judge said.